The title of insurance agent, broker, or producer are almost always used interchangeably. There can be subtle differences between the roles of the three titles depending on the particular type of insurance the person is representing. Regardless of the title, the person selling an insurance product needs to be licensed by their state, such as the California Department of Insurance.
Occasionally, I am asked whether I am an insurance agent or a broker. The underlying premise of the question is that the person does not want their insurance options limited to only those insurance companies the agent represents. The assumption is that a broker will not steer the client into an insurance policy that he or she receives the highest commission for. For the purposes of this discussion involving health insurance, there are no brokers, we are all agents. But not all agents are equal when it comes to the health plans they represent.
What is a broker?
First, lets tackle the title of insurance broker. In general, an insurance broker may have a contract with the consumer and the consumer will pay the broker a fee for their services.
From the California Department of Insurance –
SEC. 2. Section 1623 of the Insurance Code is amended to read:
1623.(a) An insurance broker is a person who, for compensation and on behalf of another person, transacts insurance other than life insurance with, but not on behalf of, an admitted insurer. It shall be presumed that the person is acting as an insurance broker if the person is licensed to act as an insurance broker, maintains the bond required by this chapter, and discloses, in a written agreement signed by the consumer, all of the following:
(1) That the person is transacting insurance on behalf of the consumer.
(2) A description of the basic services the person will perform as a broker.
(3) The amount of all broker fees being charged by the person.
(4) If applicable, the fact that the person may be entitled to receive compensation from the insurer, directly or indirectly, for the consumer’s purchase of insurance a consequence of the transaction.https://www.insurance.ca.gov/0200-industry/0080-make-changes/AB2956WebPage.cfm
Similar to a real estate agent who finds the dream home for their client, the broker has an agreement with the consumer to find them the best insurance for their situation. Presumably, the broker will go out and get quotes from all the different carriers for that particular line of insurance and present them to the consumer. The consumer pays the broker, but the broker may also receive a commission from the carrier.
(Note: I use the term carrier as a reference to any insurance company who carries or underwrites insurance policies. Sorry for the jargon.)
One could say that a broker has more loyalty to the consumer or client than the carrier. Because of the contractual arrangement between the broker and client, there may be less bias in the presentation of the insurance products available to the consumer.
What is a Producer?
From the viewpoint of the insurance company, a broker or an agent is a producer. However, when it comes to health insurance, there are no brokers. Just as the cynical name implies, Producers produce enrollments for the health insurance carriers. I use the adjective ‘cynical’ because producing sales emphasizes revenue for the carrier over service to the health plan member.
Many of the health insurance companies use the umbrella term Producer to refer to all of their appointed insurance agents. An appointed agent is a person who has signed a contract with the carrier to represent the carrier’s products, and in return, the agent receives a commission. A broker does not necessarily have to be appointed by the carrier or sign a contract to represent the carrier’s products.
What is an Insurance Agent?
An insurance agent, as licensed by the State of California, is anyone who transacts insurance.
The California Department of Insurance defines an agent as –
Section 1. Section 1621 of the Insurance Code is amended to read:
1621. An insurance agent is a person who transacts insurance, including 24-hour care coverage as defined in Section 1749.02, other than life, disability, or health insurance, on behalf of an admitted insurance company. The term “insurance agent” as used in this chapter does not include a life agent as defined in this article.https://www.insurance.ca.gov/0200-industry/0080-make-changes/AB2956WebPage.cfm
The term ‘transacts insurance’ means virtually all aspects of insurance from marketing, quoting, selling, and servicing an insurance policy. Consequently, if you speak to your local insurance agency customer service representative, that person will most likely be a licensed insurance agent. Under California law, you must be licensed to represent and sell insurance in the state.
Captive versus Independent
A captive agent is one who works exclusively for the carrier. If you call one of the health insurance companies for information on their plans, that agent will only quote you the plans and rates for their company. These are captive agents and cannot represent any other carriers. They are usually employees, but still may receive commissions or bonuses for their sales.
Similarly, if you call your local insurance agent representing one of the nation-wide home and auto lines, you will most likely only get quotes for the carrier that agency is associated with. There are also independent insurance agencies that represent a variety of different carriers. They can give you quotes from multiple carriers they are appointed with.
An independent agent does not mean they represent all the different carriers for the lines of insurance that may be available to you. The task of getting appointed with all the different carriers can be very burdensome. In addition, many of the property and casualty lines for home and auto have production requirements. In other words, the agent or agency needs to sell so many policies annually to maintain their appointment with the carrier.
What does it mean to be Appointed?
To become appointed with an insurance carrier, an agent must sign a contract with the carrier and provide other information such as any necessary errors and omission insurance policy. The appointment is then registered with the State of California. You can visit your state’s department of insurance website and see what types of insurance an agent is licensed to sell and which carriers they are appointed with. However, not all of the carriers may show on the list and some carriers will only appoint the agent after he or she has submitted business to them.
The New Marketplace For Health Insurance
Fortunately, most health insurance companies do not have production requirements. An agent can sell 1 or 100 policies per year and still maintain their appointment. This is important for an independent agent such as myself working throughout California and who wants to represent all of the different health plans regardless of where the individual or family lives. There are 19 different rating regions in California and 11 different health plans, most of which are not offered in all the different regions. Some health plans are only offered in one county, like Sharp in San Diego.
With the advent of Covered California, and the ability to assist individuals and families throughout the state, it is important to be appointed with all the carriers regardless of where I am located.
Conflict of Interest
From my perspective, if an agent is going to sell health insurance throughout the state of California, he or she needs to be appointed with all the potential carriers offered to a consumer. If an agent is not appointed with Sharp in San Diego County, and thereby would receive no commission for an enrollment through Covered California, what is the incentive for the agent to even discuss Sharp Health Plan with a resident in San Diego?
The lack of an appointment with an available health plan is a conflict of interest on the part of the agent. If the consumer is seeking health insurance through Covered California with the premium tax credits to lower the monthly premium, the Covered California agent contract states that certified insurance agents must represent all plans fairly.
If you live in a region where there are four different health insurance companies offering plans to you, but the agent is only appointed with two of them, there is a bias on the agent’s part to hope you enroll in one of the plans from one of the carriers he or she is appointed with. You should not be steered to a carrier because the agent is not appointed with other health plans. You are within your rights as a consumer to ask what carriers the agent is appointed with, receives commissions for, and what the agent compensation may be for the enrollment.
Some agents, not appointed with a carrier and not able to receive a commission, can still, and should, represent all the plans they are not appointed with. It is the ethical position to take. It is analogous to an agent enrolling an individual or family through Covered California and having them determined eligible for Medi-Cal. Agents receive no commission for Medi-Cal enrollments.
To be clear, Covered California does not pay agents for individual and family plan enrollments. The agents certified to transact insurance through Covered California for the individual and family market are paid a commission by the carriers. Covered California does pay commissions to agents for enrollments of small employer groups through their Covered California for Small Business exchange.
If an agent is appointed with a carrier, that agent can also enroll individuals and families in off-exchange plans, directly with the health plan. You don’t have to go through Covered California to get health insurance. But you can only receive the premium tax credit subsidies by enrolling in a health plan offered through Covered California.
The problem for some agents is they may not be appointed with all the carriers. Aside from the compensation issue, an agent not appointed with a particular carrier may not be aware of all the changes with the health plan. Agents appointed with the carriers get regular updates on changes to the provider network, pharmacies, and the drug formulary. This can be important consumer information necessary for you to make an informed decision.
Agent as Advocate
When an agent is appointed with the carrier, sometimes referred to as Agent of Record or Broker of Record, they can call the carrier on behalf of their client to resolve certain issues. If an agent is not appointed, then he or she cannot contact the carrier to help the client. In addition, if the agent receives no commission from the enrollment, because they are not appointed, he or she has little incentive to advocate on behalf of the client.
Duty to Carrier
An appointed agent has a duty to the carrier and the consumer. If an agent enrolls a consumer in a health plan that does not include the individual’s doctors or preferred drugs, it is a nightmare for both the carrier and the consumer. While the consumer makes the ultimate decision on which health plan to enroll into, the agent has a duty to provide guidance on which health plan best fits the needs of the client.
An agent cannot be expected to anticipate all of your potential health care needs that may be subject to a particular health insurance plan. However, you should reasonably expect the agent to provide you with important information about how the health plans work, the provider network, and the drug formulary in order to make a competent selection for health insurance. You should never feel pressured to make a decision or to select a particular plan or carrier by your agent. You are the consumer and you are in control.